By Liam Gibson — The Associated Press/Wealth of Geeks
Is it possible to be a millionaire and not feel rich? New research suggests that many Americans need $5 million to be able to claim to be.
Millionaire status, once considered the ultimate milestone in wealth creation, seems to be losing its luster.
According to a study by Edelman Financial Engines conducted in early September, very few people, even millionaires, consider themselves rich in the current economic climate.
The company surveyed more than 2,000 Americans, with an oversample of well-to-do respondents — those with a household net worth of between $500,000 and $3 million — and found that less than 15% said they "felt rich."
The majority of respondents (67%) indicated that they would need to have $<> million in the bank to feel rich, but the wealthiest did not answer the same.
More than a third of well-to-do respondents (36%) said they would need more than $5 million, highlighting the difference in perception.
The "4% Rule"
Money is only as valuable as the goods and services you can buy. Recently, the prices of many products and services have risen, and the consumer cost index has reached levels not seen in more than four decades.
With relentless inflation eating into Americans' bank accounts and an unstable stock market threatening their portfolios, many believe they need too high a savings before they can retire comfortably.
"Many of the wealthy, high-net-worth families I serve know the '4% rule' and know that a million dollars or even three million dollars are not worth today what they thought they would be when they started saving 25 years ago, because of the effects of inflation," says David E. Barfield, financial planner from the firm Datapoint Financial Planning.
The "4% rule" is popular among financial planners. It suggests that retirees can safely withdraw 4% annually from their savings to cover the cost of living.
A couple earning $250,000 a year, for example, may analyze their $3 million portfolio and realize that they can only "safely" keep about $120,000 a year in retirement withdrawals based on the "4% rule," he adds.
A Matter of Perspective
However, sometimes a number is just a number. Getting more money for the sake of it can be fueled by an irrational psychology that's hard to break.
Many millionaires actually have enough money to support even an extravagant lifestyle. However, they still can't stop earning and saving more. It's vital to focus on the right metrics.
"There's a behavioral component. Many people who have saved diligently for 20-40 years have a deep-rooted habit. Trying to get rid of it above a certain net worth figure is extremely difficult," says Ian Weiner, owner of Bespoke Wealth Solutions.
To get out of the wheel of that vicious circle, it is vital to focus on the right parameters.
"The problem with setting a net worth goal is that it really focuses on the wrong thing," Weiner adds. "You don't live on net worth, you live on the income you create."
Who do we compare ourselves to?
For others, it's about who they're comparing themselves to.
"We don't feel financially secure because of what renowned psychologist Robert Cialdini calls, 'Contrast Erroneous Influence,'" says Jonathan Bird, a financial advisor at Farnam Financial.
"Our collective attention is focused on celebrities and social media influencers who are always portrayed as having a higher standard of living than we are: private jets, expensive jewelry, etc.," he says.
"But there is good news. If you turn your attention to the world's population, you'll start to feel rich. If you have an income of $60,000 a year, you're in the richest 1% of the world's population," he says.
A quick glance at the "How rich am I?" calculator can give you an idea of how you compare to the global average. To find out what your net worth is in your own country (or in other countries), check out the Global Inequality Database or the OECD's Compare Your Income tool.